Herbert Smith Freehills – Litigation noteshttps://hsfnotes.com/litigation
The latest from Herbert Smith Freehills' litigation team
Thu, 21 Mar 2019 12:14:47 +0000 en-US
hourly
1 https://wordpress.org/?v=5.1.1Supreme Court clarifies test for setting aside judgment for fraudhttps://hsfnotes.com/litigation/2019/03/21/supreme-court-clarifies-test-for-setting-aside-judgment-for-fraud/
https://hsfnotes.com/litigation/2019/03/21/supreme-court-clarifies-test-for-setting-aside-judgment-for-fraud/#respondThu, 21 Mar 2019 12:14:47 +0000https://hsfnotes.com/litigation/?p=13674Continue reading →]]>The Supreme Court has resolved uncertainty as to the test that must be met when seeking to set aside a judgment on the grounds that it was obtained by fraud. Overturning the Court of Appeal’s decision, it confirmed that there is no need to demonstrate that the evidence of fraud could not have been obtained with reasonable diligence at the time of the earlier trial: Takhar v Gracefield Developments Ltd [2019] UKSC 13.

The question of whether there is a “reasonable diligence” requirement in cases involving fraud had been the subject of conflicting authority in the lower courts in recent years. It reflects a tension between, on the one hand, the public policy in favour of the finality of litigation and, on the other, the desire to do justice in individual cases and not permit fraudsters to benefit from their misuse of the court system. The Supreme Court’s decision comes down in favour of the latter in this context, and to that extent can be seen as an illustration of the principle that “fraud unravels all”.

However, the court expressly left open the question of the approach to be adopted in a case where the fraud had been raised in the original trial, or where a deliberate decision had been taken not to investigate a suspected fraud or rely on a known fraud. While no final view was reached, the judgments indicate a tentative view that, in such situations, a court dealing with the application to set aside the judgment should have a discretion whether or not to grant the application.

The judgments do suggest a narrow view as to when any such qualifications might be triggered. The claimant in this case had sought (and been refused) permission from the trial judge to adduce evidence from a handwriting expert, which might be thought to indicate that she had suspected, and indeed raised, the issue of fraud to that extent. Lord Kerr however observed that, while the claimant suspected there may have been fraud, it was clear she did not make a conscious decision not to investigate it; to the contrary, she sought to do so but her application to adduce expert evidence was refused.

As a practical matter, however, litigants who suspect some element of fraud should not assume that they will necessarily be entitled to re-open the litigation at a later date simply by producing evidence of fraud. Certainly, the decision does not give carte blanche effectively to “park” fraud allegations, either for tactical reasons or in the hope that stronger evidence of the fraud might come to light after judgment. In most cases, parties will still be well advised to investigate their suspicions and raise any allegations within the proceedings if they wish to pursue them.

Background

The factual background to the case is set out in our earlier post, here. Briefly, the underlying proceedings concerned allegations of unconscionable conduct in a property transfer. The claimant was unsuccessful but subsequently commenced fresh proceedings seeking to set aside the judgment on the grounds of new forensic handwriting evidence indicating that her signature on a key agreement relied on by the defendants had been forged (her original evidence had been simply that she did not recall signing the agreement).

The defendants sought to strike out the second proceedings as an abuse of process. In particular, they argued that, in the circumstances, the evidence of forgery (if such could be proved) could and should have been obtained at the time of the trial.

There was no dispute that the following principles govern applications to set aside judgments for fraud (as summarised by the Court of Appeal in Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328, and endorsed by the Supreme Court in the present case):

There has to be a “conscious and deliberate dishonesty” which is relevant to the judgment sought to be impugned.

The relevant dishonest evidence or action must be “material”, in that the fresh evidence would have entirely changed the way in which the first court came to its decision.

The materiality of the new evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not its likely impact if the claim were to be retried on honest evidence.

The key dispute was whether there is also a further requirement to show that the new evidence could not with reasonable diligence have been obtained at the time of trial. This was dealt with as part of a trial of a preliminary issue.

At first instance, Mr Justice Newey concluded that there was no authority binding on him that confirmed the existence of such a “reasonable diligence requirement” and that, as a matter of principle, he should not apply it.

The Court of Appeal disagreed, concluding that it was bound by House of Lords authority to find that there was such a requirement. The Court of Appeal’s conclusion was clearly reached with some reluctance, with Patten LJ (giving the lead judgment) commenting that there is “clearly a powerful argument” that the policy against re-litigation ought to be subject to an exception in cases of fraud, regardless of whether the due diligence condition is satisfied.

Decision

The Supreme Court allowed the appeal, holding that where it can be shown that a judgment has been obtained by fraud, a requirement of reasonable diligence should not be imposed on the party seeking to set aside the judgment. Judgments were given by Lord Kerr, Lord Sumption, Lord Briggs and Lady Arden. Lord Hodge, Lord Lloyd-Jones and Lord Kitchin agreed with both Lord Kerr and Lord Sumption.

The court considered that the earlier cases relied on were not in fact authority contrary to their decision but, even if they were, they should not be followed. While recognising the importance of the public policy against re-litigation, the court considered the competing public policy factors in cases of fraud to be compelling. Not only is it contrary to justice that a fraudulent individual should profit because their opponent fails to act with reasonable diligence, a person who obtains a judgment through fraud deceives not only their opponent but also the court and the rule of law.

The court noted that that position is consistent with the approach adopted in several other Commonwealth jurisdictions, including Australia and Canada.

Lord Briggs, while agreeing that the above should be the starting point, suggested that it should not represent a bright-line rule. He would have preferred a more flexible and fact-sensitive approach under which the court could weigh the gravity of the alleged fraud against the seriousness of the lack of due diligence. This suggestion was expressly rejected by Lord Sumption on the basis that it would introduce an unacceptable element of discretion into the enforcement of a substantive right. Once the high standard of proof for fraud is satisfied, there are no degrees of fraud which can affect the right to have a judgment set aside.

The court left open whether a lack of diligence by the innocent party would preclude a judgment being set aside for fraud in two possible scenarios:

where fraud has been raised at the original trial and the new evidence relied on to set aside the judgment is in support of that original allegation; or

where the innocent party made a deliberate decision in advance of the first trial not to investigate a suspected fraud or not to rely on a known fraud.

Lord Kerr’s judgment expresses the tentative view that, in such cases, a court considering an application to set aside the judgment should be able to exercise a discretion whether or not to grant the application, taking the applicant’s conduct into account.

However, the court considered that neither scenario applied in the present case. Lord Kerr commented that, although the claimant did suspect that there may have been fraud, it was clear that she did not make a conscious decision not to investigate it. To the contrary, she sought permission to engage an expert but her application was refused.

Lady Arden said there were matters which caused her some concern on the facts, including that the claimant had concerns about the authenticity of her signature but failed to challenge the authenticity of the agreement or appeal the judge’s order denying permission to adduce handwriting evidence. However, Lady Arden agreed that there is not, and should not be, a general rule that a lack of diligence by the innocent party precludes a judgment being set aside for fraud.

]]>https://hsfnotes.com/litigation/2019/03/21/supreme-court-clarifies-test-for-setting-aside-judgment-for-fraud/feed/0High Court refuses permission for collateral use of disclosed documents and witness statements to respond to US grand jury subpoenahttps://hsfnotes.com/litigation/2019/03/19/high-court-refuses-permission-for-collateral-use-of-disclosed-documents-and-witness-statements-to-respond-to-us-grand-jury-subpoena/
https://hsfnotes.com/litigation/2019/03/19/high-court-refuses-permission-for-collateral-use-of-disclosed-documents-and-witness-statements-to-respond-to-us-grand-jury-subpoena/#respondTue, 19 Mar 2019 10:40:58 +0000https://hsfnotes.com/litigation/?p=13635Continue reading →]]>In a decision illustrating the court’s strict approach to the rule prohibiting the use of disclosed documents and witness statements for a collateral purpose, the High Court has refused a party permission to provide disclosed documents and witness statements to the US Federal Bureau of Investigation (FBI) for the purpose of complying with a US Grand Jury subpoena: ACL Netherlands BV v Lynch [2019] EWHC 249 (Ch).

The court’s permission was required because under CPR 31.22 (in relation to disclosed documents generally) and 32.12 (in relation to witness statements), a party may only use disclosed material for the purpose of the proceedings in which it is disclosed, subject to certain exceptions including where the court gives permission.

On the facts of the case, the court held that the applicant had not established cogent and persuasive reasons in favour of granting permission, as it was required to do. The court also considered that the grant of permission might have occasioned injustice, particularly given that the trial in the civil proceedings was imminent.

The decision highlights that the fact that a party may be facing legal compulsion to produce documents is not a “trump card” leading necessarily to the grant of permission (although in any event the court was not satisfied here that compulsion had been established). Courts considering such applications will not apply a mechanistic approach and will consider all the circumstances in weighing the competing public interests involved. That is the case even if refusing permission may result in a party finding itself effectively stuck between a rock and a hard place, unable to comply with a legal demand from an enforcement or regulatory agency – though that will be a relevant factor.

Background

The proceedings arose from the acquisition of the first claimant by the second claimant. The claimants alleged that the defendant individuals had fraudulently manipulated the first claimant’s accounting records, leading to a substantial overpayment on the acquisition. The proceedings, which had attracted substantial press reporting in both the US and the UK, had been listed for a nine month trial.

Criminal proceedings in connection with the same allegations had been commenced in the US. A subpoena had been issued in the name of a Grand Jury of a US district court, addressed to the claimants’ US-based parent company and naming all the claimant companies as persons required to produce documents. The documents required by the subpoena included all documents and witness statements produced in the present proceedings.

CPR 31.22 provides that disclosed documents may be used only for the purpose of the proceedings in which they are disclosed, except where:

the document has been read or referred to at a public hearing;

the court has given permission; or

the parties who disclosed the document / to whom the document belongs have agreed.

CPR 32.12 sets out a broadly similar rule in respect of served witness statements.

The test that a court must apply on any such application for permission is well established and was not in dispute in the present case. The party applying for permission bears the burden of establishing both (a) special circumstances constituting “cogent and persuasive reasons” for giving permission and (b) that the release of the material will not occasion injustice or the risk of it (Crest Homes Plc v Marks [1987] A.C. 829).

The claimants’ principal argument was that permission should be granted because they should not be put in the position of being unable to comply with the US Subpoena, which they contended would put them in potential contempt of the US court.

Decision

The High Court (Mr Justice Hildyard) refused the application for permission.

The court noted that underpinning the rules against collateral use is a recognition that the process of document disclosure and exchange of witness statements in civil litigation constitutes an invasion of litigants’ right to privacy and confidentiality, in the interests of the administration of justice. To limit that invasion as far as possible, and thereby also promote compliance with the rules, the court has controlled the use that may be made of such material. Accordingly, while CPR 31.22 and 32.12 are procedural in form, they give effect to important public policy, of which the court must be protective. Establishing “cogent and persuasive reasons” for the grant of permission will usually require the court to be satisfied that that policy is outweighed by some other public policy.

Hildyard J also observed that a more restrictive approach should be taken to the collateral use of witness statements prior to trial than to disclosed documents generally, particularly when the trial was imminent. That was because, prior to a witness being called, a witness statement is not a public document and does not have the status of evidence. It is merely an indication of the evidence that the witness might give if called.

The court cited with approval various authorities to the effect that the fact that a party is under some form of compulsion to disclose material does not, of itself, establish a cogent and persuasive reason for granting permission for collateral use. The test is whether the use for which permission is sought justifies any exception to or erosion of the relevant public interest. Hildyard J therefore rejected what he perceived as a submission to the effect that the court’s discretion was effectively constrained in such cases of compulsion.

In any event, on the facts, it was by no means clear to the court that the claimants were technically under compulsion. It seemed likely that the legal obligation fell only on their parent company, and also that it did not have legal control of the documents (sufficient to trigger the obligation under US law) given that they could not be produced without the court’s permission.

The court did accept that, even in circumstances not involving compulsion, it was relevant to take into account the important public interest in the investigation and prosecution of fraud and, in cases of cross-border fraud, in favour of mutual international assistance. However, in assessing the weight to be given to that factor, it was relevant for the court to consider whether there was in fact a real and immediate need for the material for the purposes of the criminal investigation and prosecution. The court was not satisfied that this had been demonstrated, particularly given that the subpoena was couched in such broad terms that it was not possible from the face of the documents to link the material sought to any issue or area of investigation. It was also relevant that, although the subpoena was in the name of the Grand Jury, the US court out of which it was issued had had no substantive judicial input into it.

Finally, the court concluded that, even if the facts had established “cogent and persuasive reasons”, it would have denied permission on the basis of the likelihood of prejudice (that is, under the second limb of the test in Crest Homes). First, at least one of the defendants would potentially suffer prejudice in the US proceedings by the release of the witness statements (though less probably the disclosed documents), as the prosecutors would gain the “advantage of peering into [the defendant’s] case and brief” in a way that they could not do under normal US procedure. Further, in the English civil proceedings, the court accepted that there was a risk that some of the defendants’ proposed witnesses (who had expressed objection to their statements being released) would withdraw their witness statements. The court also expressed concern that the work involved in providing the material would interrupt and distract from the preparations for the imminent trial, which was itself prejudicial and could work injustice.

]]>https://hsfnotes.com/litigation/2019/03/19/high-court-refuses-permission-for-collateral-use-of-disclosed-documents-and-witness-statements-to-respond-to-us-grand-jury-subpoena/feed/0Court of Appeal finds clause imposing liquidated damages for delay did not apply where work was never completedhttps://hsfnotes.com/litigation/2019/03/18/court-of-appeal-finds-clause-imposing-liquidated-damages-for-delay-did-not-apply-where-work-was-never-completed/
https://hsfnotes.com/litigation/2019/03/18/court-of-appeal-finds-clause-imposing-liquidated-damages-for-delay-did-not-apply-where-work-was-never-completed/#respondMon, 18 Mar 2019 14:38:01 +0000https://hsfnotes.com/litigation/?p=13603Continue reading →]]>In a recent decision, the Court of Appeal held that a clause providing for liquidated damages for delay did not apply where the contractor failed to complete the contracted work (the installation of a new software system). The employer under the contract was therefore entitled to recover damages for breach assessed on ordinary principles, rather than liquidated damages: Triple Point Technology Inc v PTT Public Company Ltd [2019] EWCA Civ 230.

The Court of Appeal said that the question of whether such a clause applied in these circumstances would depend on the wording of the clause itself. In relation to the specific clause before the court, the clause was focused specifically on delay between the contractual completion date and when the work was actually completed by the contractor and accepted by the employer. If that never occurred, the liquidated damages clause did not apply. The case is a useful reminder that, when drafting a liquidated damages clause, it is important to ensure there is no room for doubt as to when the clause will apply.

The Court of Appeal also rejected the appellant’s argument that the liquidated damages clause should be struck out as a penalty clause, under the test established by the Supreme Court in the leading case of Cavendish v Makdessi (considered here). The court noted that the total sums as calculated under the clause were modest when compared to the financial consequences of delay in installing the software, and concluded that it was a genuine pre-estimate of loss.

The dispute centred around a contract entered into between the claimant, Triple Point, and defendant, PTT, for the supply of a software system.

Under the contract, Triple Point were to provide the new software system in two phases, with each phase having multiple stages of work. Phase 1 of the project was to be delivered by a certain time and the contract provided that if Triple Point failed to deliver the work by that time then it was

“liable to pay the penalty at the rate of 0.1% (zero point one percent) of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work…” (Article 5.3).

The contract also provided that Triple Point’s total liability to PTT was limited to the contract price received by Triple Point (Article 12.3).

Triple Point completed stages 1 and 2 of phase 1 of the work 149 days late. It submitted an invoice in respect of this work, which was duly paid by PTT.

Triple Point then submitted further invoices in respect of work which had not been completed, on the basis that payment date for such work had passed as stated in certain work order forms. PTT refused to make such payments on the basis that, under the contract, payment was to be made by milestones (which had not been achieved apart from in respect of stages 1 and 2 of phase 1).

Triple Point then suspended any further work pending payment. PTT terminated the contract. Triple Point commenced proceedings against PTT to recover sums it said were outstanding. PTT counter-claimed damages for delay and for wrongful termination of the contract.

At first instance, the judge held that:

The payment mechanism in the contract providing for payment by milestones prevailed over the dates for payment specified in the work order forms. Therefore, Triple Point was not entitled to receive any further payments.

Triple Point was not entitled to suspend work under the contract. By doing so, it was in repudiatory breach, meaning PTT was entitled to terminate the contract and claim damages.

PTT was entitled to recover the cost of procuring an alternative software system and wasted costs, capped pursuant to Article 12.3.

PTT was also entitled to recover liquidated damages for delay, totalling $3,459,278.40, which was excluded from the cap.

Triple Point appealed the judge’s decision. PTT cross-appealed against the decision that its general damages were subject to a contractual cap.

Decision

The Court of Appeal allowed Triple Point’s appeal in respect of the judge’s award of liquidated damages for delay, but otherwise dismissed the appeal and cross-appeal.

The Court of Appeal agreed with the judge at first instance that the clause providing for payment by reference to milestones took precedence over the calendar dates for payment stated in the work order forms. Further, even if payment on those dates had been required, the court rejected Triple Point’s argument that a term should be implied into the contract allowing it to suspend work in the event of non-payment. Such a term was not necessary in order to make the contract commercially workable. In the event of non-payment, Triple Point would have all the usual remedies including suing for the money due, applying for summary judgment and treating non-payment as a repudiation.

The Court of Appeal also rejected the argument that Article 5.3 was an unenforceable penalty as it imposed a detriment “out of all proportion to any interest of the innocent party” under the Makdessi test. It was relevant that the sums generated by the contractual formula were relatively modest when compared with the potential financial consequences flowing from the late delivery of the software and its impact on PTT’s business. Whilst the contractual formula was not perfect (and when applied resulted in a seemingly large headline figure for liquidated damages), the court considered it to be a genuine pre-estimate of the losses likely to flow from the delay.

In relation to whether Article 5.3 was applicable, the Court of Appeal accepted Triple Point’s argument that it was not engaged in the present circumstances. The court identified three different approaches the courts have taken to liquidated damages for delay where a contractor fails to complete work and a second contractor steps in: (i) the clause does not apply; (ii) the clause applies up to termination of the first contract; and (iii) the clause continues to apply until the second contractor achieves completion.

The court said it had its doubts about category (iii) as that meant the employer and the second contractor could control the period for which liquidated damages would run. The choice between categories (i) and (ii) would depend on the precise wording of the liquidated damages clause in question. Here the clause focussed specifically on delay between the contractual completion date and the date when Triple Point actually achieved completion. The court therefore held that the clause had no application where Triple Point never handed over completed work to PTT. This meant that PTT was entitled to recover liquidated damages in respect of Triple Point’s delay of 149 days in relation to completion of stages 1 and 2 of phase 1 only, totalling $154,662. It was not entitled to recover liquidated damages in respect of any of the other work contracted for, on the basis that Triple Point did not complete any other sections of the work. For this, PTT was entitled to recover damages for breach of contract in the normal way.

Finally, the Court of Appeal held that the liability cap in Article 12.3 imposed an overall cap on Triple Point’s total liability, which included any liquidated damages for Triple Point’s delay. Since the cap had been wholly used up by the award of general damages, this prevented PTT from recovering the liquidated damages of $154,662.

Anthea Brookes

]]>https://hsfnotes.com/litigation/2019/03/18/court-of-appeal-finds-clause-imposing-liquidated-damages-for-delay-did-not-apply-where-work-was-never-completed/feed/0Upcoming webinar – Privilege update: some old problems remain and some new ones emergehttps://hsfnotes.com/litigation/2019/03/15/upcoming-webinar-privilege-update-some-old-problems-remain-and-some-new-ones-emerge/
https://hsfnotes.com/litigation/2019/03/15/upcoming-webinar-privilege-update-some-old-problems-remain-and-some-new-ones-emerge/#respondFri, 15 Mar 2019 11:38:19 +0000https://hsfnotes.com/litigation/?p=13599Continue reading →]]>On Tuesday 19 March (12.30 – 1.30pm GMT), Julian Copeman, Anna Pertoldi and Maura McIntosh will deliver a webinar for Herbert Smith Freehills clients and contacts looking at developments in the English law of privilege over the past six months. In that time, the courts have reinforced some old problems, such as the narrow interpretation of “client” for the purposes of legal advice privilege which has now been confirmed by the Court of Appeal (however reluctantly) in the high-profile ENRC case. They have also created some new problems, with the Court of Appeal in the WH Holding v E20 case denying privilege for internal emails discussing settlement proposals.

Overall, the recent decisions present significant challenges for commercial parties seeking to obtain legal advice or deal with litigation under the protection of privilege. In this webinar we will discuss the recent decisions and consider practical steps commercial parties can take to address the challenges.

The webinar is part of our series of HSF webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or can be downloaded as podcasts after the event. If you would like to register for a webinar, or to obtain a link to the archived version, please contact Prudence Heidemans.

]]>https://hsfnotes.com/litigation/2019/03/15/upcoming-webinar-privilege-update-some-old-problems-remain-and-some-new-ones-emerge/feed/0Open Justice: Rule changes to increase transparency in the civil courtshttps://hsfnotes.com/litigation/2019/03/14/open-justice-rule-changes-to-increase-transparency-in-the-civil-courts/
https://hsfnotes.com/litigation/2019/03/14/open-justice-rule-changes-to-increase-transparency-in-the-civil-courts/#respondThu, 14 Mar 2019 14:49:15 +0000https://hsfnotes.com/litigation/?p=13594Continue reading →]]>From 6 April 2019, a number of changes to the Civil Procedure Rules will come into effect with the intention of reinforcing the principle of open justice and clarifying how it operates in the civil courts. The amendments include:

emphasising the general rule that hearings are to be held in public, and clarifying the test for when a court may direct a private hearing or party/witness anonymisation

making it clear that the general rule applies not only to traditional hearings in a courtroom, but also those held in chambers or via telephone/videolink

a new express duty on the court to take reasonable steps to enable public access to hearings

a new procedure requiring orders for a private hearing or anonymisation to be published on the courts’ website

a new power for judges to direct a represented party to compile and share with a litigant in person a note of a hearing pending the receipt of a transcript.

Jan O’Neill, a Professional Support Lawyer in our Disputes team, has published a post on Practical Law’s Dispute Resolution blog discussing the changes. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

]]>https://hsfnotes.com/litigation/2019/03/14/open-justice-rule-changes-to-increase-transparency-in-the-civil-courts/feed/0Shareholder class actions – new webinar and “handy client guide”https://hsfnotes.com/litigation/2019/03/13/shareholder-class-actions-new-webinar-and-handy-client-guide/
https://hsfnotes.com/litigation/2019/03/13/shareholder-class-actions-new-webinar-and-handy-client-guide/#respondWed, 13 Mar 2019 13:42:52 +0000https://hsfnotes.com/litigation/?p=13575Continue reading →]]>Herbert Smith Freehills has today released the third in our series of webinars on class actions in England and Wales, looking at shareholder class actions. In the presentation Simon Clarke, Harry Edwards and Kirsten Massey discuss the outlook for shareholder group actions in England and Wales, the types of claims (eg under sections 90 and 90A FSMA) and remedies likely to be pursued by shareholder group claimants, and some challenges in bringing and defending these actions. Clients and contacts of the firm can register to access the archived version by contacting Prudence Heidemans.

The webinar is accompanied by the fourth in our series of short guides to class actions in England and Wales, Shareholder class actions, which has been published here (together with our first three editions: (i) Overview of class actions in the English courts; (ii) Group Litigation Orders; and (iii) Data breach class actions).

]]>https://hsfnotes.com/litigation/2019/03/13/shareholder-class-actions-new-webinar-and-handy-client-guide/feed/0High Court considers application of much-criticised exception to without prejudice rulehttps://hsfnotes.com/litigation/2019/03/12/high-court-considers-application-of-much-criticised-exception-to-without-prejudice-rule/
https://hsfnotes.com/litigation/2019/03/12/high-court-considers-application-of-much-criticised-exception-to-without-prejudice-rule/#respondTue, 12 Mar 2019 16:21:49 +0000https://hsfnotes.com/litigation/?p=13585Continue reading →]]>The High Court has held that the content of “without prejudice” (“WP”) communications between the parties to the proceedings was inadmissible, though the fact of the WP negotiations could be referred to. The counterparty to the WP communications would be prejudiced by admission of the communications, and it had neither deployed the content of the WP communications nor put in issue matters which were only justiciable by reference to them: Briggs v Clay [2019] EWHC 102 (Ch).

Whilst the court accepted that the list of exceptions to the WP rule is not closed, it emphasised that any exception must be of the same character or a principled and incremental extension of an existing exception. The court did not regard the present case as falling within the scope of the (much-criticised) exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74, where the WP communications were relevant to whether a party had reasonably mitigated his loss in negotiating a compromise of separate proceedings, and the party had himself put the reasonableness of the settlement in issue. The court noted that the Muller exception had not previously been held to apply in the case of WP negotiations in the very claim that is before the court, and said that the exception sought to be identified in this case risked significantly undermining the policy of encouraging parties to attempt to settle disputes in multi-party litigation.

The decision provides a careful analysis of previous case law on the scope of the WP rule, and seeks to clarify the extent of the Muller exception which is a matter of some uncertainty. The decision suggests that the exception will come into play where negotiations are relied on to prove some collateral matter and the other party to the WP communications will be unaffected by admission of the WP material, or where the party seeking to assert the privilege has raised an issue which is only justiciable upon proof of the WP communications.

The claimants, who were a number of participating employers and the trustees of a pension scheme, brought a claim for damages for professional negligence against the former scheme administrators/professional advisers (“Aon”) and the claimants’ previous solicitors and counsel (the “Lawyers”).

The claim followed separate proceedings between the claimants and the representative beneficiaries of the scheme in which various deeds Aon had prepared for the scheme were held to be invalidly executed and of no effect. The claimants were granted permission to appeal that decision and engaged in WP discussions with the representative beneficiaries seeking to reach a compromise of the appeal. Aon was not involved in these discussions, but was kept informed by the claimants. At the same time, there were negotiations between the claimants and Aon about Aon’s potential liability.

The negotiations between the claimants and the representative beneficiaries resulted in an agreement to compromise the appeal (the “Settlement”). No agreement was reached between the claimants and Aon, however, and so the claimants issued their claim seeking compensation for losses arising from Aon’s alleged breach of duty.

In its defence to the claim, as well as denying any breach of duty, Aon alleged that the Lawyers were negligent in their conduct of the original claim and the negotiations leading to the Settlement, in failing to raise an argument that certain employees never became a part of the scheme (the “Participating Employer Argument”). Aon claimed that this was a new intervening event which broke the chain of causation between its alleged liability and the claimants’ losses. The claimants adopted these arguments and added the Lawyers to the proceedings.

In their defences, as well as denying any negligence, the Lawyers pleaded that Aon was closely involved in both the proceedings against the representative beneficiaries and the negotiations leading to the Settlement and at no point raised the Participating Employer Argument. In support of that pleading, the Lawyers set out in their defences a large amount of detail in relation to the WP negotiations between the claimants and Aon.

Aon sought a declaration that the WP correspondence not be referred to in evidence or in submissions at trial, and that the Lawyers serve replacement versions of the defences which omitted the WP content. There was no dispute that the relevant correspondence was WP; rather, the Lawyers submitted that:

Aon had impliedly waived the WP privilege by making the allegations they had against the Lawyers (the claimants, for their part, had expressly waived their privilege in relation to the same communications).

The Lawyers were entitled to rely on the correspondence by way of an exception to the WP rule, because it would be unjust to require them to face the allegations made against them without being allowed to deploy material that might enable them to answer those allegations, relying on the exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74 (see below) or a comparable exception.

Decision

The court (Fancott J) held that the fact but not the content of the WP communications was admissible in the proceedings.

The court noted that this case was unusual in that related WP communications, between the claimants and the representative beneficiaries, would be in evidence at trial (because the claimants had waived privilege in those communications by suing the Lawyers in relation to the conduct of those negotiations, and the representative beneficiaries had confirmed their agreement to the communications being disclosed). However, the Lawyers were seeking to put in evidence the content of separate WP communications made in an attempt to settle the current claims against Aon.

Implied waiver

The court rejected the argument that Aon had impliedly waived WP privilege over the communications.

The court observed that, because such a waiver would have the effect of the whole of the WP communications becoming admissible to prove any relevant fact, “an implied waiver of the privilege attaching to without prejudice negotiations is not lightly inferred”.

The case law establishes that when a party to WP negotiations deploys the content of the negotiations on the merits of the claim, even for a limited purpose, that party thereby waives its right to insist on the protection of the rule if the counterparty accepts that the negotiations can be referred to. Otherwise, the judge said, the court must ask itself whether, given the purpose of the rule, any reference to the negotiations is such that it would be unjust for that party to insist on the protection of the rule.

Here, Aon had not referred to or “deployed” any of the content of the WP communications. Whilst Aon had put in issue the reasonableness of the Settlement, the Lawyers’ alleged negligence, the cause of the claimants’ loss and the extent to which the Lawyers (as distinct from Aon) should be responsible for the claimants’ loss, those issues were independent of the fact or content of the WP negotiations between the claimants and Aon.

Exception to the WP rule

The court also concluded that there was no exception to the WP rule which justified admission of the content of the WP communications.

The judge agreed with the Lawyers that the claimants had waived their right to WP protection by bringing the negligence claim against the Lawyers. Where negotiations were relied on to prove some collateral matter (such as reasonable mitigation of loss) and the other party to the WP communications was unaffected by the claim (like the representative beneficiaries in this case) the Muller exception would, the judge said, be readily applicable.

However, Aon was not in the same position as the representative beneficiaries, whose claims had been settled. The claim against Aon was pending, which meant that Aon had a legitimate continuing interest in the broad protection conferred by the WP rule (namely the confidentiality of its negotiations to try and settle the claim). Aon risked losing that protection if the content of the WP communications was put in evidence, even if to prove a collateral matter.

The court then considered whether the fact that Aon had raised the allegations of negligence against the Lawyers affected the position. It noted the general principle that bringing a claim or making an allegation does not disentitle a party from relying on WP privilege, as that would undermine the operation of the rule. However, the judge said, that general principle “may well be qualified” where an issue is raised which is only justiciable upon proof of WP negotiations. Cases such as Muller were examples of that kind. As the judge put it:

“A claimant (or defendant) cannot at one and the same time raise an issue to be tried and rely on without prejudice privilege to prevent the court from seeing the evidence that is needed to decide it.”

The court noted, however, that the Muller exception had not previously been held to apply in the case of WP negotiations in the same claim that was before the court. For the exception to arise, the judge said, it must be necessary that the material be admitted to resolve an issue raised by a party to the WP negotiations, in circumstances where the legitimate protection given to the parties to the negotiations was not adversely affected.

The court then reviewed whether it was necessary to admit the WP communications in respect of the issues raised by Aon. Ultimately, the court concluded that it was not necessary, on any of the issues, for it to examine the WP communications in order to have a fair trial. The judge accepted that in the absence of an exception to the WP rule, a trial judge would have an incomplete picture of events. He observed, however, that this was simply the consequence of an exclusionary rule. The WP rule is broad in its effect and with narrow exceptions. Although the list of those exceptions is not closed, any exception must be “of the same character or a principled and incremental extension of an existing exception”.

The court also rejected the Lawyers’ argument that it could separate out the WP materials and redact those materials to the extent necessary. The court regarded such redaction as encountering a number of difficulties both in practice and principle (particularly since there was before the court “no definitive map of the surgery to be performed”).

The court did, however, agree with the Lawyers that the fact of the WP communications could be referred to in evidence (even though the content of those communications could not) where that fact was relevant to an issue in the case. The court accepted that the fact of the WP negotiations could be relevant to the “new intervening act” issue and to the apportionment of responsibility between Aon and the Lawyers.

Matthew Eglezos

]]>https://hsfnotes.com/litigation/2019/03/12/high-court-considers-application-of-much-criticised-exception-to-without-prejudice-rule/feed/0Court of Appeal gives guidance on scope of fiduciary duty in “secret commissions” casehttps://hsfnotes.com/litigation/2019/03/12/court-of-appeal-gives-guidance-on-scope-of-fiduciary-duty-in-secret-commissions-case/
https://hsfnotes.com/litigation/2019/03/12/court-of-appeal-gives-guidance-on-scope-of-fiduciary-duty-in-secret-commissions-case/#respondTue, 12 Mar 2019 10:51:29 +0000https://hsfnotes.com/litigation/?p=13568Continue reading →]]>The Court of Appeal has found that there was no breach of fiduciary duty where an introducing broker failed to inform its client investors of the amount of commission it received from the financial institution to which it had introduced them: Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83.

This decision represents a novel application of the law in this area and it offers helpful guidance as to the scope of the fiduciary duty that may be owed by an agent to its principal to disclose commission payments. The Court of Appeal confirmed the following general principles of broader application:

A principal’s knowledge of its agent’s remuneration may limit the scope of the fiduciary duty that the agent owes to its principal to disclose that remuneration.

Generally speaking, where a principal knows that its agent is being paid by another party, it cannot complain that it did not know the precise particulars of the amount paid.

However, where there is no trade or customary usage, the principal’s knowledge of the commission may need to be “more specific”. Considering the specificity of knowledge required by a principal, the Court of Appeal noted two factors relevant in the present case:

Sophistication of the principal – in this case the investors were wealthy and experienced investors.

Degree of secrecy – the commission was less “secretive” because the investors knew that all the commission payable to the broker was payable by the financial institution (the investors did not pay any commission to the broker themselves, they only paid commission to the financial institution).

In the present case, the Court of Appeal concluded that there was no duty on the broker to disclose to the investors the actual amount of the commission it received from the financial institution. The broker’s failure to disclose the amount of commission it received did not, therefore, represent a breach of the broker’s fiduciary duty.

]]>https://hsfnotes.com/litigation/2019/03/12/court-of-appeal-gives-guidance-on-scope-of-fiduciary-duty-in-secret-commissions-case/feed/0High Court restrains claimants from using defendant’s privileged material obtained from third parties in unknown circumstanceshttps://hsfnotes.com/litigation/2019/03/01/high-court-restrains-claimants-from-using-defendants-privileged-material-obtained-from-third-parties-in-unknown-circumstances/
https://hsfnotes.com/litigation/2019/03/01/high-court-restrains-claimants-from-using-defendants-privileged-material-obtained-from-third-parties-in-unknown-circumstances/#respondFri, 01 Mar 2019 09:54:53 +0000https://hsfnotes.com/litigation/?p=13492Continue reading →]]>A recent High Court decision demonstrates that, whilst confidentiality is a prerequisite to a claim for privilege, information will not cease to be confidential unless it is in fact known to a “substantial number of people”: Winstone v MGN Ltd [2019] EWHC 265 (Ch).

In the present case, the court found that the quality of confidentiality had not been lost where the contents of the privileged material had come into the hands of a small group of investigative journalists and at least one investor, and may have (though the evidence did not establish that it probably did) come into the hands of others.

The decision is consistent with previous judgments which suggest that the courts may take quite a robust view as to when privileged material has (or has not) entered the public domain, so as to lose the requisite quality of confidentiality, particularly where the privileged material has been obtained in breach of confidence (see this post) or through inadvertence (see this post) – that is, outside the disclosure process in legal proceedings, where different principles apply (as considered here).

Background

The issue arose in the context of the phone hacking litigation, in which large numbers of claimants have brought claims against MGN for breach of privacy, alleging that their private information had been accessed by means of voicemail interception.

MGN applied for an injunction to restrain the claimants from referring to documents or communications which MGN contended were privileged, and which the claimants had obtained from third parties who themselves had obtained them in unknown circumstances. These were:

The Partington Note: a marginal note which was made by MGN’s in-house lawyer, Mr Partington, on a copy of a witness statement served on MGN in employment tribunal proceedings.

The Grigson Comments: comments made by the chairman of MGN’s parent company, Mr Grigson, at a reception following the company’s AGM, in which he responded to enquiries by a former MGN reporter, Mr Johnson, about what Mr Partington had said regarding knowledge of phone hacking.

The claimants argued that the claim to privilege must fail because the relevant material could not sensibly be regarded as either initially or still confidential, or alternatively that as a matter of discretion an injunction should be withheld.

Decision

The High Court (Mr Justice Norris) upheld the claim to privilege and granted the injunction in respect of the Partington Note, but rejected the claim to privilege over the Grigson Comments.

Partington Note

It was common ground that when the Partington Note was made its contents were privileged, either as recording advice from MGN’s external lawyers, or as recording an assessment by Mr Partington as to what should be sensibly done. It was also common ground that, once privilege attaches, the privilege is absolute and cannot be disregarded on the basis of some higher public interest.

The issue was whether the Partington Note had lost the character of confidence which is essential to an assertion of privilege. The judge held that it had not. The content of the Partington Note had come into the hands of a small group of investigative journalists and at least one investor, and may have (though the evidence did not establish that it probably did) come into the hands of others. That did not mean that the quality of confidentiality had been lost. Applying the comments of Sir Nicholas Browne-Wilkinson VC in Stephens v Avery [1988] 1 Ch 449, information only ceases to be capable of protection as confidential when it is in fact known to a substantial number of people. The evidence did not establish that in this case.

Since the privilege in the Partington Note had not been lost, the claimants could be restrained from making use of its contents, even though they had innocently come into possession of the confidential information. In some cases, as an injunction is a discretionary remedy, it might properly be refused eg on the ground of inordinate delay. What is inordinate delay must be evaluated in each case; on the facts here, the court was satisfied that delay was not a bar to the grant of injunctive relief.

Grigson Comments

The court assumed for these purposes that what Mr Partington knew about phone hacking (whether deriving from instructions received from MGN or coming to his knowledge in the course of acting as MGN’s lawyer or having some other origin) was capable of being privileged information.

Nonetheless, the Grigson Comments were not privileged because they lacked the requisite quality of confidentiality. The AGM and the subsequent reception were public occasions. Mr Grigson could not reasonably have thought that his answers to questions on the “hot topic” of MGN’s knowledge of phone hacking, at such public occasions, could be confidential, and his listeners (which probably included other journalists, apart from Mr Johnson, and shareholders) would not think that they were being imparted confidential information.

It was in any event too late for MGN to claim that the communication was confidential and to assert privilege. The claimants had provided MGN with a transcript of the Grigson Comments on 6 June 2018 and pleaded the Grigson Comments in their Particulars of Claim shortly afterward. That did not prompt a claim to privilege, and the Particulars of Claim lay on the court file and were open to public inspection until 5 December 2018. It would therefore be inappropriate to grant injunctive relief, even if privilege had attached.

]]>https://hsfnotes.com/litigation/2019/03/01/high-court-restrains-claimants-from-using-defendants-privileged-material-obtained-from-third-parties-in-unknown-circumstances/feed/0Inadequate explanation, no relief: A reminder of the potential tough consequences of failing to comply with a court orderhttps://hsfnotes.com/litigation/2019/02/28/inadequate-explanation-no-relief-a-reminder-of-the-potential-tough-consequences-of-failing-to-comply-with-a-court-order/
https://hsfnotes.com/litigation/2019/02/28/inadequate-explanation-no-relief-a-reminder-of-the-potential-tough-consequences-of-failing-to-comply-with-a-court-order/#respondThu, 28 Feb 2019 11:33:43 +0000https://hsfnotes.com/litigation/?p=13487Continue reading →]]>The High Court has refused an application for relief from sanctions in relation to a failure to comply with an unless order for the payment of costs arising from a failed interlocutory application: Consult II SRO v Shire Warwick Lewis Capital Ltd [2019] EWHC 286 (Comm).

In refusing to provide relief from sanctions, the court has provided a timely reminder of the need for a party seeking relief to provide detailed and cogent evidence as to why the relevant failure has occurred. Where the breach is a failure to pay a costs order, and the applicant seeks to rely on an inability to pay, the court will expect full and frank disclosure of the applicant’s financial position, including the prospects of raising the necessary funds.

It is worth noting in particular the court’s comment that the standard of evidence required to explain a failure to comply, on an application for relief from sanctions, should be no lower than the standard expected when the court decides whether to impose a sanction in the first place.

The claimants brought a claim against the defendants alleging, amongst other things, conspiracy to defraud and fraudulent misrepresentation. They sought damages of €4,448,416.24.

In April 2018, the court granted a freezing injunction against several of the defendants. In August 2018, the defendants applied to discharge or set aside the freezing injunction. The application was dismissed and the court awarded the claimants their costs of the failed application in the sum of £102,700 (payable within 21 days) (the “Costs Order”).

No payment was made and on 26 October 2018 the court ordered (by consent) that, unless the defendants paid the claimants’ costs of the failed application within 14 days, they would be debarred from defending the proceedings, any defence served prior to that date would be struck out, and the claimants would have permission to obtain judgment in default (the “Unless Order”).

Again, no payment was made and the claimants subsequently filed a request for judgment in default pursuant to the Unless Order on 12 November 2018. On 16 November 2018 the claimants also successfully applied to vary the freezing injunction (in light of the defendants’ failure to comply with the Unless Order). The effect of these variations was that if the defendants did not apply for relief from sanctions by 30 November 2018 (supported by a witness statement and such documents as the defendants were apply to supply) then the freezing injunction would continue until conclusion of the proceedings or until any judgment was satisfied.

On 30 November 2018 the defendants (now acting in person) applied for relief from the sanctions, supported by a witness statement from one of the defendants.

Legal background: CPR 3.9 and the test in Denton

The relevant procedural rule engaged in applications for relief from sanctions is CPR rule 3.9:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, practice directions and orders.

(2) An application for relief must be supported by evidence.”

The three stage test typically applied by the court when dealing with applications for relief from sanctions was set out in Denton v TH White Ltd [2014] EWCA Civ 906 (considered here):

The first stage is to assess whether the failure to comply with any rule, practice direction or court order is sufficiently serious and significant (if it is not, the court is unlikely to spend time on stages (2) and (3));

The second stage is to consider why the failure occurred; and

The final stage is to evaluate “all the circumstances of the case” to enable the court to deal justly with the application, including taking account of the need for litigation to be conducted efficiently and at proportionate cost (CPR 3.9(1)(a)) and in compliance with the procedural rules CPR 3.9(1)(b)).

Decision

The court (Andrew Henshaw QC sitting as a High Court judge) refused the defendants’ application for relief from sanctions.

Applying the test set out in Denton, which it noted will apply equally to litigants in person as to represented parties, the court held as follows:

Stage One – Serious and significant failure: The defendants had not seriously sought to contest that their failure to comply with the Unless Order was serious or significant. The Unless Order was for a significant sum to which the claimants had been put to as a result of the defendants’ “unmeritorious” application to discharge the freezing injunction. The lengthy period of time since payment had fallen due under both the Costs Order (September 2018) and the Unless Order (November 2018) and the fact it remained unpaid only increased the seriousness of the breach.

Stage Two – Why the breach occurred: The court emphasised the express requirement for an application for relief from sanctions to be supported by evidence (in accordance with CPR 3.9(2)). As to the standard of this evidence, the court specified that:

“… the applicable standard of evidence required to explain its failure to comply with the obligation in question should be no lower than the standard that applies when the court decides whether to impose a sanction in the first place. It would be illogical and contrary to the underlying policy … for a party to be relieved from a sanction based on a lower standard of evidence than would have been required to avoid the imposition of the sanction”.

In Michael Wilson & Partners v Sinclair [2017] EWHC 2424 the court emphasised that, in circumstances of non-payment of costs orders, it was incumbent on a party who claimed that it lacked the means to pay, and that therefore a debarring order would be a denial of justice, to provide detailed, cogent and proper evidence which gave full and frank disclosure of the party’s financial position, including the prospects of raising the necessary funds.

In the present case, the witness evidence in support of the defendants’ application failed “by a considerable margin” to provide an adequate explanation as to why payment had not been made. The evidence provided was “highly unsatisfactory”, gave no details of the defendants’ financial position, and did not include disclosure of relevant supporting documents.

Stage Three – Evaluation of all the circumstances: The defendants’ failure to pay the Unless Order had, taking account of all the circumstances, hampered the efficient conduct of the proceedings, including delaying the service of the defendants’ defence, and substantially and unreasonably increased the costs of the litigation. CPR 3.9(1)(a) was therefore engaged.

Further, the very purpose of an unless order – encouraging compliance with rules and orders – would be undermined if parties who failed to comply with such an order could obtain relief “without providing a clear, full and frank explanation of the reason for their failure that satisfies the court that it is just to grant relief.” CPR 3.9(1)(b) was consequently also engaged.

In these circumstances, and even making allowance for the defendants’ lack of legal representation, it was not just to grant relief from sanctions. The Unless Order would therefore take effect.